Q: Three years ago I took over my mortgage after a divorce. My ex-husband had accumulated a load of other debt and my credit history was good. It was the best decision at the time.

I refinanced our loan into a 3/1 adjustable rate mortgage with an initial 5.625 percent interest rate because I’d planned on selling this year. But with the housing market in dismal shape, and no homes selling in my area I have to do something as my payments are a big drain on my monthly income, and might increase in September.

Alimony was part of the agreement for many years, but my ex-husband has lost his job so I’m on my own with a teacher’s salary and $2,318 a month in house payments.

Is there anybody else in my boat? I’d love some ideas on how to save and bring in extra income to augment my talks with my banker, financial planner and accountant

A: Don’t beat yourself up about the mortgage you took out three years ago. All you can do is make the best decision in the moment that you’re at. From your description, it sounds as though taking over the house was the best idea at the time.

Now we’re three years down the line. Let’s look at some of your options:

First, you can try to sell the house. While we are in the worst housing market in the past 40 years, more than 5 million homes will be sold this year. One of them could be yours. There are still properties that are receiving multiple offers.

How can you make that happen? Your house will have to look better than all other homes in the neighborhood and be priced the most competitively. Then, everyone will look at your house, and someone will make an offer.

Your second option is to refinance. Since you don’t plan on staying in your house for too long, I’d refinance to an interest-only loan. While you won’t add to your equity, you will cut down dramatically on your house payments. If your credit is good, you should get a great rate.

Another option would be to rent out a room in your house for a year or so, bringing in an extra $500 to $1,000 per month in income. This would help you defray your expenses even as you prepare the house for sale.

If someone has a cash flow problem, there are only two ways to solve it – cut down on your spending or increase your income. In your case, you might try to do both simultaneously. If you can add some tutoring hours to your week (which might be tough, given how much work teachers are already doing), it could help your cash flow.

A final option may be to do nothing. You need to investigate your current loan terms and determine what might happen to your loan interest rate if interest rates continue to stay where they are today for the rest of the year.

You may find that your loan is set to the 1-year Treasury Rate plus a margin (or mark-up) of about 3 percent. If that’s the case, your interest rate may actually go down when it resets in September and stay that way for another year.

You’d not only save the cost of refinancing, but would buy yourself another year in which you can choose the best time to sell your home. If your loan is set to another standard and that standard today would cause your interest rate to go up, the “do nothing” option may not be the right move.

Published: Mar 7, 2008